Core views

The company released its 2024 three-quarter report. The Q3 revenue and profit all achieved a double-digit decline. The main reason was that the peak growth rate of new homes was delayed. Demand declined drastically in July-August due to insufficient demand for new homes. However, in September, trade-in subsidies drove a recovery in market demand, and sales of various kitchen appliance categories improved dramatically. We look forward to revenue and profit elasticity brought about by trade-in in Q4 and subsequent trade-ins. The company's traditional smoke stove sales are stable, and its leading position continues to be consolidated. At the same time, it is increasing the layout of products and channels such as dishwashers and integrated stoves, promoting the development of a multi-brand matrix, and achieving high revenue and profit growth in sub-brand fame. The company continues to strengthen its long-term competitive advantage, and will maintain a steady development trend in the future as new channels expand and replacement demand increases.

occurrences

On October 28, 2024, Boss Electric released its report for the third quarter of 2024.

In Q3, the company achieved operating income of 2.666 billion yuan (YOY -11.07%), net profit to mother 0.443 billion yuan (YOY -18.49%), and a net margin of 16.61% (YOY-1.51pct).

Brief review

1. Revenue analysis: The share of demand for new housing declined, clearly driven by trade-in 1) Traditional categories: The decline in real estate data in July-August led to a decrease in industry demand, and the impact of trade-in in September was obvious. With the in-depth implementation and implementation of the trade-in policy, the range hood market showed a cumulative year-on-year correction throughout the year, and the growth rate of the gas stove market's impact on the large-scale replacement cycle further increased. According to data from Aowei Cloud Network, the cumulative retail sales of range hoods and stoves in the first three quarters increased 4.5% and 6.3%, respectively. In September, retail sales of range hoods and gas stoves increased 43% and 37%, respectively, and the policy promotion effect was obvious; and large trade-in subsidies effectively drove the growth of the high-end market. Compared with January-July and August, the share of retail sales in the 3000+ market in September increased 2.2% and 3.5%, respectively. Compared with January-July and August, the share of retail sales in the gas stove 2000+ market increased by 2.4%, respectively. At 1.2%, leading brands have benefited even more from the implementation of the “state subsidy” policy.

2) Emerging categories: The scale of dishwashers is growing, and integrated stoves are being dragged down by new houses. According to data from Aowei Cloud Network, there was a differentiation between integrated stoves and dishwashers. Q3 dishwasher sales and sales volume increased 10.4% and 14.0% year on year, respectively, of which September increased 26.9% and 29.1% year on year; Q3 integrated stove sales and sales volume fell 25.1% and 23.2% year on year respectively, with September falling 16% and 14% year on year, respectively. The main reason is that dishwashers are on the trade-in subsidy lists in many places, driving a recovery in market demand; however, demand for integrated stoves is more closely related to new homes, and the replacement cycle has not yet arrived, making it difficult for integrated stoves to become the main category in this round of trade-in.

2. Profit analysis: Expense ratio increased slightly, profit margin was basically stable 1) Gross profit margin and expense ratio: The structure promoted an increase in gross margin. In terms of gross profit, the Q3 gross margin was 53.18%, an increase of 0.99 pct over the previous year, mainly benefiting from changes in channel and brand structure. In terms of expenses, the cost ratio increased by 2.76 pct year on year during the Q3 period, and the sales/management/R&D/finance expense ratio was +2.26/+0.68/+0.12/-0.30pct, respectively, mainly due to the increase in the share of e-commerce channels, which led to an increase in the cost rate.

2) Net interest rate: Net interest rate declined in the short term. The net interest rate is expected to remain stable at 16.61% in Q3, a year-on-year decrease of 1.51 pcts, mainly affected by the decline in gross margin. As the trade-in stimulus continues to show, the Q4 net interest rate is expected to remain stable.

3. Q4 outlook: The trade-in policy continues to be implemented. In terms of revenue and profit flexibility, the peak of lagging growth in new housing completion and sales has passed. Q4 will usher in the Double Eleven promotion and trade-in dividends, and retail and e-commerce channels are expected to contribute to growth. In terms of profit, the increase in the share of retail channels is expected to support gross profit margins, while emerging categories such as dishwashers and integrated stoves continue to expand, and the company's Q4 profit margin is expected to stabilize.

Investment advice: The company's core category position is stable, and emerging categories continue to contribute more. As new demand declines and market competition intensifies, the company adheres to the multi-brand matrix collaborative development strategy and continuously strengthens its long-term competitive advantage. As the risk of impairment is cleared, the profit level is expected to remain stable. We predict that in 2024-2026, the company will achieve a net profit of 1.662/1.801/1.925 billion yuan, corresponding EPS of 1.76/1.91/2.04 yuan, and the PE corresponding to the current stock price is 13.36/12.33/11.53 times, maintaining a “buy” rating.

Risk analysis

1) Industry competition has intensified: The kitchen appliance industry has entered an era of stock competition. There are many dimensions of competition. Enterprises need to develop in a balanced manner on the product side, service side, and marketing side. Currently, all types of enterprises have entered the kitchen appliance industry, and competition may further intensify.

2) Price fluctuations of raw materials: Raw materials are the main component and cost source of kitchen appliances. Prices of raw materials affect the profit level and performance of the kitchen appliance sector. Prices of raw materials fluctuate greatly, which is not conducive to the pricing and steady operation of kitchen appliance companies.

3) Fluctuations in the real estate industry: Kitchen appliances have immediate demand and high installation attributes. Relying on real estate momentum and offline consumption scenarios, the current demographic dividend and real estate momentum are gradually disappearing, the sales scale of new homes is shifting downward, and kitchen appliance sales may continue to be under pressure.